If your mortgage lender's told you you "can't afford" to move to a cheaper deal because of new affordability checks, there's fresh hope after one MoneySaver agreed a £3,600 saving thanks to our campaign. Here's how they did it – and what to try if you're in the same situation.
We've been fighting to help so-called 'mortgage prisoners' over the past year (see MSE founder Martin Lewis's Taking on the EU Mortgage Credit Directive blog). And it appears our efforts are starting to pay off, at least for those looking to move to a cheaper deal with their existing lender.
Annette's husband Jason had been stuck on a standard variable rate (SVR) mortgage for more than eight years, with his lender repeatedly refusing to let him move to a cheaper deal.
But then Annette read in MoneySavingExpert.com's weekly email that on the back of a meeting with Martin, Chancellor George Osborne had written to lenders urging them to waive affordability checks for existing customers. Armed with this info, Annette went back to the lender, got it to change its mind and bagged her husband a better deal – a five-year fix saving him £60/month.
Why are some trapped on more expensive deals?
This is all about remortgaging. New rules introduced under the 2014 Mortgage Market Review and 2016 EU Mortgage Credit Directive mean that anyone getting a mortgage is subject to strict affordability checks scrutinising their incomings and outgoings. This is to check they'll be able to repay not just at their current mortgage interest rate, but at rates of 6% or 7%.
Although the rules are intended to stop people taking out mortgages they can't afford, they're also applied to those who already have a mortgage – meaning that ridiculously some are being told they can't afford a cheaper mortgage, despite their circumstances not changing. The rules are different though depending on who you're trying to remortgage with:
- If you want to switch to a different provider, the EU rules (or at least the UK's interpretation of them), insist that affordability checks are applied – so some people trying to remortgage could be stranded on a more expensive deal.
- If you want a cheaper deal with your existing provider, the rules state affordability criteria don't need to be applied – though some lenders appear to have been applying them anyway.
Martin met the Chancellor last month to argue for greater flexibility in both cases. We've struggled when it comes to getting more flexibility for those switching to a different lender, and are still campaigning on that. But those looking for a deal with their current lender should be able to avoid affordability checks as the rules stand now – and Osborne's letter, following his meeting with Martin, was to remind lenders of that.
Martin says: "The letter from the Chancellor was a partial success in this campaign, and I'm delighted that it's paid off for Annette and Jason. However, it does still leave us in a bizarre situation. There are people who overpay their current mortgage being told they can't get a deal at a new lender, even though it's cheaper, because they 'can't afford it'.
"This is plainly anticompetitive nonsense. Lenders don't want it and nor do borrowers. The problem is the EU says it's the way the Financial Conduct Authority (FCA) has interpreted the rule, and the FCA says it had no choice. I've asked the Chancellor to intervene on this and hope to report more progress soon."
How Annette and Jason did it
Jason took out a 'self-cert' mortgage (which are no longer available but used to cater for people who couldn't specify how much they earn) in 2007, on a three-bed Hampshire home. Despite never missing a payment, he and his wife were repeatedly told he couldn't afford to move to a cheaper deal. But then Annette read the MSE email.
She said: "When I saw that Martin was on the case it gave me new hope, and I was on it like a shot. I called the bank and got the usual line about affordability checks and the fact their hands were tied, but I was ready for that and said 'hold on a minute, hasn't the Chancellor just written to you saying that these can be waived for people changing to a cheaper deal?'
"After a rather intense conversation they agreed to my husband remortgaging at a lower interest rate on a five-year fixed term. The paperwork from the solicitor has now come through – all being well the new contract should be in place by the end of the month." The new deal will see Jason save £60/month – which works out at £3,600 over the course of the five-year fixed term.
Annette adds: "My advice to other people in a similar situation is that some lenders are going to try and pull the wool over your eyes, but if you're firm but polite and armed with the right information on these affordability checks, then you can get a better deal."
The couple's lender, the Bank of Ireland, told us it wouldn't comment on "specific customer accounts", but a spokesperson says: "The bank would not restrict customer access to an alternative interest rate product purely due to the assessment of the customer's affordability".
What to try if you're also looking to escape
Of course, each case is different and you may not be able to do exactly what Annette did. For full help, see our Remortgage Guide 2016, but in brief...
- Speak to your lender. Ask it to clearly set out why it won't let you move to a different deal. Make sure you've all the facts and figures to hand and can clearly show that the deal you'd be switching to would be less expensive.
- If it still won't budge and says it's because of affordability rules, show it the latest guidance. As Annette did, you can refer it to the official rules which state that lenders can waive affordability checks for existing customers. In particular, show them the Chancellor's recent letter.
- If you're still stuck, contact a mortgage broker. These are impartial, professional advisers who have good contacts with a variety of lenders and may be able to pull levers that you can't.
If you've encountered problems remortgaging on a cheaper deal, either with your existing lender or a new provider, or if you've successfully argued your case and secured a better deal, please let us know in the comments below or by emailing firstname.lastname@example.org.